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CHAPTER 11 – De-mystifying the Process
By Steven B. Soll, Esq., Otterbourg Steindler Houston & Rosen, P.C.
The recent bankruptcy filings by Marco Polo Seatrade B.V., Omega Navigation Enterprises, Inc., General Maritime Corp. and Trailer Bridge Inc. have the industry buzzing about Chapter 11 of the United States Bankruptcy Code. Everyone talks about it, most (whether a potential debtor, lender, investor, contractual counterparty or other type of creditor) resist or fear it, yet few understand the process or how it can affect their business. The purpose of this article is to de-mystify the process by identifying select provisions of the Bankruptcy Code and the Chapter 11 process to provide you with a summary overview of what can happen in a Chapter 11 case.
Chapter 11 is considered to be a debtor friendly process, particularly in comparison to foreign insolvency proceedings, which tend to be more supportive of the strict enforcement of secured and unsecured creditors’ rights. By comparison, the objective of a Chapter 11 proceeding is to provide a debtor with a “fresh start” for the reorganization of its business. Despite this objective, in addition to creditors fearing Chapter 11, debtors resist it as well. Two primary reasons for this trepidation are 1) the high cost of a Chapter 11 case (which will be discussed below) and 2) the uncertainty of the outcome. As they say, you should expect the unexpected.
Dr. Strangelove, or How I Learned To Stop Worrying and Love the Restructuring Process
By Jim Dolphin, Managing Director, AMA Capital Partners
Recent announcements by a growing number of shipowners may not signal the coming of a nuclear winter, but it certainly may feel that way for many shareholders and bondholders – and even first lien banks. During the last big wave of shipping restructurings from 1998 until 2002, when the shipping community had little cash on hand and the bond defaults were coming fast and furious, my partner Peter Shaerf trotted out the line “We thought the market had hit bottom until they started handing out the shovels” as the market cratered quickly and in a very public fashion. This time around, we seem to be in a slow motion wave of defaults, initially concentrated in speculative offshore projects and now gaining pace in commodity shipping markets, where the turnaround seems hard to imagine given the still enormous orderbook. We know there is value locked in these assets, however, so full attention is being turned to restructurings to extract the greatest value – either by acting now or betting on a recovery. Dating back to the late 1990s AMA Capital Partners has been involved as an advisor to companies and creditors in more shipping and offshore restructurings than any other firm, and we have learned a few lessons along the way. Multiple names have been deleted from this piece to protect the innocent, and the not so innocent.
Working with European Banks
By Dr. Klaus Stoltenberg, Global Head Ship & Aircraft Finance, NORD/LB
Challenges for a European Shipping Bank
The financial crisis and the unheard of downturn in the shipping markets have brought a lot of issues to the table. European banks have traditionally been a major source of financing for the maritime industry. Now that they are heavily affected by the crisis and are confronted with a rapidly changing regulatory environment, it seems unlikely that things will come back to normal any time soon.
We see several Shipping banks pulling out of business, but we believe the reasons are not exclusively or primarily shipping driven. There seem to be two major drivers: (1) the increased cost of capital and (2) the increased cost of funding.
A Guide to Using the Owner’s Manual
By Nora Huvane
Asked to give a presentation on preserving value in difficult capital markets, Mark Whatley, Vice President at Evercore Partners, quipped “perhaps we should first evaluate whether there is any left.”
Fortunately ships do have some intrinsic value, but certain capital structures created during times of much higher values may have run into a negative value situation, which is where Mr. Whatley’s point becomes more apropos. Once the underlying value is disentangled and properly assigned, and losses properly recognized, the “house”, to allude to our cover metaphor, can begin to be restructured and ultimately rebuilt. Liquidity needs and cost tolerances can be accurately assessed, and existing stakeholders can recommit while new investors can also have an opportunity to get in at a time where they stand to make meaningful returns – if they are patient.
A Tale Worth Repeating
By George Weltman
Life was Simpler Then
We have a simple business. We fill empty holds with cargo and move the goods where directed. There is no cheaper alternative to moving raw materials and finished goods globally, leaving shippers at our mercy in what might be considered, in its largest sense, an oligopolistic market. But for the volatility of oil prices, our costs are relatively inexpensive. Operations with foreign crews are cheap and maintenance can always be deferred. A capital market that did not price in risk and insurers who also lost sight of risk while they sought market share. Could there be a more idyllic world?
Certainly revenues are volatile. But believing ourselves capable of timing the cycles, we order more ships in anticipation of the next cycle or a boom which we believe will never end. And like most wished for things, they come at the wrong time. The cartoon character Pogo best describes us: “We have met the enemy and it is us.”
Yes, Netflix Exists But I’m Going to Buy a VCR
By Adam Baylor, MTI Network and Maren Engh
Let’s face it. There’s no turning back. Social Media is here to stay in all aspects of our lives.
After the Deepwater Horizon tragedy, social media became inextricably linked to crisis communications.
Photos of oiled wildlife were Tweeted. Smartphone videos of oil washing ashore were posted to YouTube. Anti-BP groups were created on Facebook. Within five days of the Macondo blowout, the remotely operated vehicle’s underwater footage was streaming live on the Internet as thousands of barrels of oil gushed into the ocean.
The Shipping Corporate Risk Trade-Off Hypothesis
By Andreas G. Merikas, Christos Sigalas and Wolfgang Drobetz
The decision making process in maritime financial management consists of three main pillars: investment, financing and operation. Each pillar defines its own sub-universe and constitutes its own market with its own rules. The investment pillar refers to the market for newly built and secondhand vessels, the financing pillar is associated with the markets for debt and equity capital, and the operation pillar is related primarily to the freight market. Nevertheless, all three pillars and their underlying markets have one common denominator, namely “volatility”, which affects – in various ways and through various channels – the level and the variation of the outcome of any shipping corporate decision. Specifically, given that vessel prices can move radically in either direction, the decision of when to invest in a newly built or a secondhand vessel exposes shipping companies to substantial investment risk. Management’s choice to operate a vessel in the spot charter market rather than in the period charter market introduces market risk due to the variation of freight rates as a result of shipping market demand and supply shifts. And, finally, the choice between debt and equity financing determines a shipping company’s financial risk, as increased financial leverage reduces the probability that the cash flow generated from operating a vessel will be sufficient to meet the contractual capital repayments and the associated interest expense.
Investor Relations: Maximizing the Potential of the US Marketplace
By Nicolas Bornozis, President of Capital Link
The US remains the capital markets hub for shipping stocks. It has the largest number of listed shipping companies, an extensive investor base which includes both institutional and individual investors, a large number of analysts and brokerage firms / investment banks actively following the sector and an expanding number of journalists, reporters and bloggers who cover shipping. At the same time, because of its size, diversity and complexity, the US market place is the most demanding and daunting from an IR perspective.
A successful IR program must meet the informational needs and standards of all constituencies –shareholders, prospective investors, analysts, bankers, media- going well beyond the pure fulfillment of regulatory requirements. The basic functions of an IR program are to provide to the market a consistent, clear and meaningful information flow on the company’s development and strategy and then to gather, analyze and evaluate market feedback.
Investor Relations – Objectives, Form, and Substance
By Richard Lemanski
If you asked a dozen CEOs of publicly traded shipping companies the question “what is the objective of investor relations?”, you would probably get close to a dozen different answers which would include:
• To increase the share price of the company
• To ensure a valuation for the company at better multiples than its peer group
• To draft and issue press releases
• To draft presentations
• To field questions from investors and analysts (particularly those pesky ones the CEO does not want to answer!)
• To update the web site
• To find new investors for the company
• To ensure the company trades above NAV
• To increase analyst coverage
• To reduce share price volatility
Opportunities for Shipping in the Greek Public Markets / Dual Listing
Source: Athens Stock Exchange
At a time when most commentators have nothing much positive to say about the Greek economy and its prospects, the Athens Exchange (“ATHEX”) is endeavouring to attract the Greek shipping community to list locally and raise much needed capital for expansion.
In many respects it is natural for Athens Exchange to be a truly 21st century exchange. Its vision is to provide an efficient, transparent and accessible exchange market with uncomplicated admission procedures. The Athens Exchange is constantly innovating, having “state of the art” technology to bring shipping companies and investors (local and international) on a faster more efficient trading platform, while ensuring fair securities pricing mechanisms.
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